Now, with all the risks and uncertainties attending an enterprise of this sort, if the ultimate profits were limited in advance to 5 or 6% on the capital invested, less depreciation, who but the Government itself could afford to build a railroad?
Evidently, when an existing railroad makes small additions from time to time to extend or take care of its business, the risk is not so great. Such extensions will continue more or less under any limitations.
For rate-making, it is evident that an appraisal based on earnings will utterly fail of its purpose if made during the lean years immediately following construction. If made some years later, when the property has begun to pay, the risk and necessary financial loss of the lean years should be remembered, as any one building a road in the future will necessarily have the same problems to meet, together with the expenses of interest, depreciation, loss from operation, etc., both during the construction and the lean years following, all of which must properly be considered a part of the real cost of constructing and developing a property.
J. E. Willoughby, M. Am. Soc. C. E. (by letter).—The determination of the cost of reproducing the property of any steam railway involves, together with other items, an estimate of the present cost of:
First.—The acquirement of the right of way, to the extent, in the form, and on the location of that held in connection with the railway to be reproduced;
Second.—The construction thereon of the roadway, to the form and dimensions, and of the materials which the roadway to be reproduced exhibits; and
Third.—The seasoning and adaptation of the roadway to the state of perfection which the roadway to be reproduced exhibits at the time the estimate of cost of reproduction is made.
The first conception, for fixing the cost of the several items, is to consider the railway to be reproduced as being non-existent at the time the estimate is made, but having the environment which then exists along the operated railway, although that environment may be largely of the railway's own creating. The cost of the right of way is to be fixed as ungraded and unimproved property attached and forming a part of the adjoining improved property, which adjoining property will be entitled to receive, in addition to the market value of the land taken, all consequential damages due to the taking off of the right of way in the form and location that the land has actually been taken, and for the purpose of railway construction and operation. This adjoining property is to give credit on the consequential damages for the incidental benefits which it derives, if any, from the construction and operation of the railway.
In fixing these values, the drift of public sentiment—the bias of juries of view and of trial juries—at the time the estimate of cost of reproduction is made must be considered, since that sentiment may affect enormously the cost of the right of way. The amount to be paid for a right of way is in the end that which a condemnation court will award. The question as to whether or not the right of way was originally donated can no more enter into the determination of the cost of reproduction, for the purpose of lessening the estimate of cost of acquiring the right of way, than the fact that donations of lands or bonds (or of convict labor and slave labor, as in the South prior to 1860) made by governmental authority or private enterprise, at the time of the original construction, can be used to reduce the reproduction cost of the excavation made in the formation of the roadway.
No rule as to the sale of property for commercial purposes in the vicinity of an operated railway can be rightfully adapted as covering the line as a whole. While the cost of right of way through farm or timber lands bears a general relation to the value of those for agricultural purposes, where improvements thereon bear but a small proportion to their total value, this relation is wholly wanting in the cost of a right of way through a village or city or at any point where the improvements on the property bear a large proportion to its total value. The relation is also wanting where a right of way is obtained through agricultural lands devoted to special purposes, like that of country homes for the rich. It is also wanting where the right of way is taken out of the narrow river lands in the Appalachian Mountains, where the total value of the whole farm is dependent on the small acreage of flat land along the river bank. The general rule of prefixing a constant to the current selling price of lands, in order to determine the estimated cost of right of way, should be limited to agricultural and timber lands, and to those which, owing to their extent, the carving out of the right of way does not wholly destroy for the continuation of agricultural and timber operations.